Uber Spinning Out of Control: Employees Eyeing Exits as Press (Finally) Starts to Question Business Model

The lead story at the Wall Street Journal describes how Uber, with its top ranks decimated and the company now run by an unwieldy 14 member committee, is begging employees to stay. From the Journal:

In the days after Travis Kalanick stunned Uber Technologies Inc.’s more than 15,000 employees by resigning as chief executive, the company’s senior leaders made impassioned pleas reassuring them it is worth sticking around….

Months of unflattering headlines and an investigation into allegations of sexual harassment and sexism at Uber have taken a toll. In interviews, some employees expressed sadness over the company’s now-tainted reputation, while others said they were upset with management for allowing its dirty laundry to be aired. Some said they were hopeful Uber could restore its reputation after adopting nearly 50 changes to improve its culture that resulted from an internal investigation into workplace conduct by former U.S. Attorney General Eric Holder’s law firm…

Some employees said the uncertainty has made it hard to work, especially as they have watched co-workers pack up their desks. Others said they are considering leaving, fearful that Uber could face a struggle to raise new funds. On the other hand, some worry about missing on out a big payday if they leave before their stock options fully vest, which takes four years, or before a reinvention of the company culture.

“People are leaving because they feel like it’s on fire,” said Nora Hamada, a recruiter with Mirus Search, who said she has helped a handful of Uber employees find work at other startups.

The Wall Street Journal pointed out that waiting for stock options to vest could lead some workers to stay on, but that Uber made them less juicy as its valuation skyrocketed. From a New York Times story earlier this month:

Since at least 2015, Uber has offered employees different versions of the share buyback program. In general, employees who have worked at the company four years and have been granted stock options meaning the ability to buy a certain number of shares from the company at a low price — may sell part of those options back to Uber at a locked-in price. Uber pays the employee for those options over several months.

The idea behind the program is that employees can turn some of their paper wealth into cash while still working at Uber. If they quit before the entire amount is paid, the payments stop.

Such a buyback targets early employees because participants must have worked at Uber four years or more. About two years ago, when Uber had fewer than 2,000 full-time employees, it stopped issuing stock options in compensation packages and instead issued restricted stock units, which the company is not permitted to repurchase. Uber now has about 14,000 employees.

As Lambert demonstrated this week in Links, none of the initial stories on Kalanick’s ouster as CEO questioned Uber’s business model or lack of a credible path to profits. That’s starting to change. From a Financial Times story, Can Uber ever make money?:

…the challenge now will be to shift Uber’s model from one that has been very successful at revenue growth, to one that is more financially sustainable and, eventually, profitable.

Some economists say there was no obvious way to do that…

“There is no clear pathway I can see for Uber to go from a high-revenue growth company to a profitable company,” says Aswath Damodaran, a professor of finance at the Stern School of Business. “Normally the story for start-ups is that as revenues grow economies of scale will kick in, but that story is tough to tell with Uber.”….

Uber has between $6.5bn and $7bn of unrestricted cash in the bank, with a further $2.3bn untapped line of credit. This could cover the company’s cash needs for roughly three more years, extrapolating from its losses during the first quarter of this year….

The fact that switching costs are so low between one service and the other — both drivers and riders can easily flip between the apps — means that it can be hard for Uber to defend its market dominance.

In comments, reader Nick Name pointed out:

It is just an app, nothing more. Amazon have built a formidable distribution machine, Google’s IP is unassailable, even Netflix is now creating some unique content, but Uber could be replicated by a proficient teenager.

Even beyond that the fundamental flaw in their model is that there is no inherent penalty in a driver working for multiple networks nor for the customer using multiple networks. In fact it makes economic sense for the drivers to do this as they can play the networks against each other. In the world where uber owns a fleet of autonomous vehicles first mover advantage would have been huge and unassailable. This is decades away however and I doubt uber will still be around then (not to mention the fact that the motor giants are probably perfectly capable of running their own fleets).

The Journal described in some detail how Liane Hornsey, chief of human resources, and Frances Frei, senior vice president of leadership and strategy, both of whom recently joined the company, are shaking up performance reviews and other policies. For instance:

Rather than numerically ranking employees against one another based on performance and potential career trajectory, and linking the ranking directly with pay, Uber is encouraging managers to help their teams set three or four business goals and broader “citizenship” goals for the company, employees said. Other changes include training in diversity and adopting a version of the “Rooney Rule,” which requires hiring managers to interview diverse candidates for all open positions….

Who gets paid and who gets promoted send the strongest signals to employees as to what a company really cares about. But it’s way too early to tell how these new programs will relate to pay. Moreover, younger workers famously want very specific feedback and individual assessment. A lot of workers may be less than keen about team-based approaches, not just because it’s by design a big departure from what management hopes will be the old Uber, but also because it seems to go against the grain of the preferences of self-perceived tech stars. Plus with so many top slots open, particularly that of the CEO, who knows how many of these new initiatives will turn out to be provisional or wind up being treated as corporate eyewash.

And on top of that, there’s a rearguard action underway:

Some employees are standing by Mr. Kalanick. More than 1,000 signed an internal petition demanding that the board reinstall him. “Employees, we need to revolt this!” read the petition, reviewed by the Journal.

Some employees also have friends and colleagues urging them to quit:

“There’s a lot of peer pressure to quit Uber to work at a more ethical company,” Ms. Hamada said. Female employees she has spoken with in particular feel pressured by friends and peers at other tech firms to leave, she said.

And this Mercury News story Friday, Uber sanctioned for refusing to comply with Moraga sexual battery investigation, judge calls company’s record “horrific”, sure won’t help:

Uber was sanctioned Friday for its failure to comply with a search warrant for records on a driver suspected of sexually battering a female passenger for more than 10 minutes, with a judge calling its reputation for dealing with law enforcement “horrific.”…

Before imposing a $1,000 sanction, which takes effect Monday if Uber hasn’t submitted the records by then, Judge Clare Maier blasted the ride hailing company for its history of failing to cooperate with law enforcement, and said she was “very concerned” the company had an “ulterior motive” for its noncompliance in the Beker case.

$1,000? No wonder the company is thumbing its nose at the judge. But now is one of the few times that a story like this can do actual harm to the local ride company.

So Uber drama will continue to keep reporters busy. Couldn’t happen to a more deserving bunch.

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  1. Quanka

    I have been fortunate enough to be away from the states on vacation while this unfolded – away from the daily “non-reporting” news. One interesting observation is watching the press play catch up to NC. Literally within the last day or two there’s been a noticeable shift in the English-language press starting to run real stories on the business of Uber as opposed to the politics and gossipy crap they’ve been peddling.

    The death clock seems to be accelerating towards midnight …

    1. Optimader

      NC , with some heavy lifting by Hubert Horan, have done an excellent and entertaining job covering Uber’s uncontrolled rentry from high earth orbit as it’s cash shield ablates.. but

      “…I have been fortunate enough to be away from the states on vacation while this unfolded. – away from the daily “non-reporting”….”

      Huh?? whaa??? I hope Uber undustainable revenue model is your biggest concern!

      As for me, this is all taking a predictable trajectory as a historic failing biz case study takes form and the media darling has its “expert journalist” sycophants turn on it when the blood starts dripping in the water.
      The icing on the cake for me is Eric Holder taking a payoff for his failed attempt to wipe some of the sht off the walls

  2. Ignacio

    This is why NC is my favourite site for news and analyses. Having followed the excellent series of articles by Hubert Horan about UBER, this doesn’t come as a surprise for me.

    I want to mention an off topic, but related issue regarding Airbnb and regulatory issues around these new business models based on internet services. In this case, home rental is being abused by many parties.

    Barcelona to fine Airbnb and HomeAway €600,000 each for offering ‘illegal’ accommodation

    Watch Airbnb’s answer:

    In response, Airbnb slammed “outdated rules that protect existing industries and threaten what is an economic lifeline for thousands of citizens”.

    Outdated rules means that a municipality cannot exert control on the destiny of its buildings/houses and drive the general arrangement of uses, services etc. to facilitate city management, avoid decay of particular zones, fiscal abuses etc.

    This shows that companies like Airbnb represent, more than many other companies, the ultraliberal stablishment. Somehow, the new bussiness models try to bring the oldest, outdated, laissez-faire principles of early capitalism. I agree that some rules are outdated. We need NEW, modern rules and controls adapted to properly regulate these services. I feel that the tide is changing for these companies and in general the neoliberal current is loosing stream. For instance, the spanish socialists have recently joined other european socialist parties to reject CETA (the Canada-UE “free-trade” treaty).

    Hey Yves, Hubert. Good job!!!

    1. PlutoniumKun

      Yup, NC is amazing, its been so far ahead of the curve on this over the entire worldwide media its incredible. How on earth can so many financial journalists have missed what seems so obvious?

      I wonder if AirBNB might pay a price for being the most high profile accommodation company. They seem to be the ‘tall poppy’ that gets all the flack – here in Ireland too, they are tightening up the rules to make it harder for professional AirBNB landlords, and I’ve heard many stories of individual apartment building owners banning or restricting AirBNB rentals. I was talking last week to a neighbour who is a professional landlord and he says he won’t use AirBNB – he finds they won’t allow him put the restrictions he wants on tenants – he only wants tenants who will stay for more than a week or two. He uses some of the older, longer established rental agencies.

      1. JMM

        How on earth can so many financial journalists have missed what seems so obvious?

        I don’t think they have missed it. It’s only that they didn’t report it.

        1. different clue

          I agree. I don’t think that they missed it. It’s only that they tried their best to suppress any mention of it.

          1. Quanka

            I actually disagree with this – at least as being the primary driver. I think many journalists are hacks, in that they’ve been raised on the values of “access journalism” as opposed to investigative journalism. See the long-form treatment in one of the water cooler’s from Lambert last week.

            Don’t get me wrong – there are many good / intelligent / savvy reporters out there. But the ones that get the most press are the A-J stooges who will peddle any anonymous B.S. if it gets them closer to power.

            I honestly think many of the people pimping for Uber really bought the “just like Amazon” line of thinking and just moved on to the question of when they would take over the world and make car-based transportation a utopia for everyone. They don’t know shit about company financials and it shows in their utter inability to even comprehend the NC/Horan series.

            1. different clue

              If you are correct, then the MSM is in real trouble, and so are the people who accept it as informative. Because if the MSM presstitutes are really too gahh dumm stoopit to know if their info is true or false or “not EVen wrong” , then there are at least 200 million people in this country happy to live in a fog of “not EVen bullshit”.

              That means the other 100 million will just have to find and create and pay for a whole separate parallel network and framework of information acquisition and dissemination. These other 100 million people will also have to figure out which pieces of MSM material are correct-by-accident.

        2. WheresOurTeddy

          “It is impossible to get someone to understand something when his paycheck depends on him not understanding it.”


      2. cnchal

        > How on earth can so many financial journalists have missed what seems so obvious?

        Too funny. They are paid to get it wrong, and if they by chance get it right, risk getting fired. What Yves, Hubert and NC have done is douse the financial press with a bucket of ice water to wake them up, and now, when they look intensely inept, have to follow the leader.

        I look to the future, when the second dumbest money on the planet, the Saudis, lose their togas, and the dumbest money on the planet, US inwestors, lose their Cadillacs, Mercedes Benzs and Mc Mansions.

        It is at the point that all “official” news is so thoroughly discredited, that all people involved with it should permanently hang their heads in shame, yet they preen around like the goobers out there still believe them.

        1. Huey Long

          Too funny. They are paid to get it wrong, and if they by chance get it right, risk getting fired. What Yves, Hubert and NC have done is douse the financial press with a bucket of ice water to wake them up, and now, when they look intensely inept, have to follow the leader.

          You took the words right out of my mouth. They get paid to recite the party line, period.

          That being said, I’m grateful for sites like Naked Capitalism and Moon of A where I can read news and commentary that isn’t blatant corporate propaganda.

        2. Mark P.

          cnchal wrote: They are paid to get it wrong, and if they by chance get it right, risk getting fired.

          I worked as a journalist for a decade and that is exactly how it works.

          1. fajensen

            I worked as a journalist for a decade and that is exactly how it works.

            I work as a technical expert, it is exactly how it works in my field too (except that Physics have more back-pressure than just “information” or “numbers”).

            With ZIRP and “NIRP”, “people” have oodles of “free” money, dumber-than-evah-money, much more money than they have decent ideas for, thus they go around expert-shopping until they find someone to endorse even the worst of their ideas with real expertise.

            Thus a new tech unicorn is born every five minutes. With some vital organs missing, but, if it survives to IPO it’s already golden for everyone involved.

      3. JTMcPhee

        …got to protect the aspiring, as yet weak, rentiers, now don’t we? How many here aspire to profit from the rentier business model? Yah, got to give them NEW, MODERN regulations that foster and protect their looting options and “rights,” and protect them from “responsibilities,” neh?

        “Professional landlords.” Seen that category before. Always works out well for the mopes and the community (that huge cow that all these vampires feed off of.) Property Rights! Markets!

        How many readers here aspire to be the last one through the door labeled “Propertied Elite?” Are here looking for clues on how to spot the next Big Short opportunity? “If I don’t do it, somebody else will.” Yah, that’s the way forward, all right. “I drive a giant SUV because I CAN AFFORD IT.”

        What sorry sh!te.

      4. Liberal Mole

        That’s odd. Two AirBnB rentals I’m looking at have 30 day stay minimums. I use both standard motels and AirBnB. The latter for specific locations, price, and longer stays where having a kitchen is important.

        1. MtnLife

          Local tax officials in our area have been cruisin airbnb looking for people dodging the room and meals tax that’s due on stays shorter than a month. My buddy rents 90% of his place (he is a bachelor with a small converted garage apt), a nicely styled old farmhouse, out by the month at a price that’s equal to a couple nights at the more expensive local hotels/b&bs and people really go for it. Doesn’t matter if you only use it for one weekend as the value is there. He wins by getting his mortgage paid and only seeing one family per month.

    2. Donna

      I don’t know if this will come to anything but I thought it would be worth mentioning to the brainiacs around here.

      I have a vacation rental property listed on VRBO/HomeAway since 2005. At that time VRBO was the biggest vacation rental website here. HomeAway was just being born.

      How times have changed? Over the last two years HomeAway, now owned by Expedia, has been tightening the screws on property owners. Since selling out to Expedia I believe a computer person would say they changed the algorithm to include more properties in the response to a search term. I have seen my inquiries cut in half and my bookings cut by 75%.

      The woman who manages my property and 10 others has stated that all of her owners are in the same boat. My questions are: what does this do to owners who needed that income to make their mortgage payments, what will that do to property values if owners need to sell, could this lead to foreclosures in the second home market?

      Maybe not in the large metropolitan areas but in the smaller communities with a smaller tourist market where could this lead? Pure speculation but just thought this could be a good place to mention a potential unseen real estate sell off.

      1. Louis Fyne

        ” they changed the algorithm to include more properties in the response to a search term”

        Everyone needs to diversify their platforms as they’re at the mercy of an algorithm. Whether it’s youtube content creators, iTunes musicians, google advertisers, etc.

        Your platform’s interests are not coincidental with yours.

  3. Quentin

    Amsterdam, Netherlands. I live in an inexpensive rent-control apartment, ultimately owned by the municipality (I think, sort of British council housing), managed by a nonprofit organization which is one of the biggest in the city. This week it informed its tenants that it is not permissible to rent to tourists under any circumstances, naming Airbnb specifically while applying the decision to any other such business. Even though the municipality has a policy of encouraging individuals renting to tourists for short periods, the terms of my lease take precedence and exclude the activity. Kudos to socialism!

    1. JTMcPhee

      Ah yes, evil socialist restrictions on Property Rights! The Absolute Right to Sublet, to god knows who, to “make a profit” off of arbitraging your rent-controlled leased apartment. I’m sure all the tenants are overjoyed at having such “freedom” to insert random “tourists” into the publicly funded milieu of that building.

      Who built the buildings, and presumably manages and maintains them? Does the rent you pay even cover the costs of provision of the housing, or does the “community” socialistically subsidize those?

      Gee, any worries about all the other “rights” that authoritarian, looter-rentier-driven political economies have stolen away? Got a “smartphone” and Facebook account? Happy to “go cashless?” Pay your share of the global war economy?

    2. PlutoniumKun

      Thats increasingly the attitude of private owners too. Some apartment owning companies ban short lets and sub-lets outright. I’m on the management committee of my building (every apartment owner is a voting member), and there is no demand for an outright ban – some people are away for months of the year due to their work and want the right to sub-let – but nobody wants an AirBNB activity, its too much of a security threat. The general consensus of members is that if people manage tenants closely, its not a problem, but holiday lets are too high a risk. I’ve no doubt that this consensus may change if further problems arise.

      I should say that that the biggest problem we’ve had are not holiday lets – its from irresponsible landlords who don’t keep an eye on longer term tenants. This is the number one issue that keeps getting raised in board meetings.

    1. Huey Long

      Hmmmmm, I think he’d be perfect, especially as he has 8 years of experience being an empty suit covering for an evil organization, but I also think he’s smart enough to avoid jumping on a sinking ship.

        1. Quanka

          Can we put a pause on the negative Uber reporting so that the idiot takes the job? I can’t imagine a better fit.

  4. Vastydeep

    I think that even here on NC we might be falling short in reviewing Uber.
    The “Ah HA!” of Uber isn’t that it’s a “tech company” (it isn’t), or the “shar(ecropp)ing economy” (nothing new there either).   The Ah HA of Uber is that it was formed and operates strictly to establish what factors are needed to make an expressly-illegal business de-facto legal.

    It’s a recipe, and here are the ingredients:

    – an illegal endgame — Uber only wins if it becomes a monopoly
    – a war chest ($13B raised!) big enough to
    – win wars of attrition against any “little people” that bring suit
    – subsidize pricing to drive cab companies out of markets
    – pay “protection” money to prosecutors that could cause issues
    – buy legislators to make today’s crimes tomorrow’s “Best Practices”
    – Media support — board-member Ariana Huffington
    – VC support — board-member Bill Gurley makes this a “High Tech” investment
    – Political support — David Plouffe was Barack Obama’s 2008 campaign manager
    – a hated enemy — nobody likes cabs, cab company economics are lousy, NOBODY defends cabs!
    – a psychopathic CEO who will attract “bad boy” press, rather than the “criminal” press he should draw. Nobody will miss a psychopath when you throw him under the bus when the experiment is over.

    With all the scandals, Uber now has too much smell for its backers to continue with it.  So shut it down and throw Travis under the bus.   Use the lessons of Uber to advance all the little “Uber-of-xxx” businesses still littering VC portfolios.  In that sense, the “Uber experiment” is just beginning.  As Balzac wrote (incidentally the epigraph to The Godfather):  

    “Behind every great fortune there is a crime.”

    1. DH

      Ultimately, the big risk with Uber is that it is really just a software company, which means new software can be developed to replace it.

      Self-driving cars in the future means that developing the AI, sensors, and vehicles themselves will require a lot of investment and knowledge. It will not surprise me if the big mergers a few years from now are companies like Google and Apple merging/acquiring/partnering with old-school vehicles to bring their AI, mapping, and electronics design experience to bear on vehicles. The car companies are already buying the electronic interfaces for their radios/phones from Apple etc.now. Extending that partnership to the entire vehicle is likely coming.

      If the future for vehicles in cities is corporate-owned self-driving electric vehicle fleets, then that is going to require huge capital investments which will only be available to companies with many of the major components under the belt. That is a completely different business model than a phone app.

      Uber/AirBNB also have the fundamental ethical and behavioral baggage of ignoring long-standing laws in cities, similar to the banking industry developing MERS to do end-runs around county clerks and their fees/paperwork/delays. I think there is a lot to be said by periodically challenging the status quo but in general, that will be most successful if other laws and societal norms other than the targeted one are scrupulously followed. This was a cornerstone of the civil rights movement where everybody tried to behave impeccably while breaking racist laws so they would not simply look like hoodlums and looters, which is where the banking and Uber’s reputations have ended up.

      1. Optimader

        “Self-driving cars in the future means that developing… deployable wings and a new source of energy and propulsion… will require…

        The notion of practical self driving cars might as well include technology that can exploit the third dimension. They will need a volume rather than an area to function.
        Think BladeRunner

    2. footnote4

      With sales tax avoidance as the original exploitation opportunity, your list largely applies to Amazon as well.

      Just following the ‘market’ logic where it leads, add the fawning press, etc., and damn the consequences – from Walmart to Amazon to Uber

    3. Kevin Carhart

      I think you’ve done something very good here. The timespan of the world that you are considering in your example necessarily spans the lifespan of Uber AND a future taking place after Uber is dead. Which means that there are people a level up who use and deploy these pilot-project entities possibly not just for a traditional IPO story, but also for your idea of a recon or research project. If what you’re describing could be demonstrated, maybe this could change society’s views on VC. The fact that they use equity and not debt usually seems to be the basis for an argument that they are “on the side of the angels” (as in this very interesting post by Yves, http://www.nakedcapitalism.com/2017/02/private-equity-slugfest-managing-partner-sequoia-slams-blackstone-chief-steve-schwarzman-new-york-times-op-ed.html). Another interesting place to find this out was in a hearing convened by senators Reed and Bunning on “alternative investments”. They were mostly concerned with systemically dangerous institutions, which meant they were focusing on leverage. There was a VC guy at the table who constantly said “we don’t do that. We’re on the side of the angels. We put in literal cash. I think you want to be talking to THEM.” (gestures to the private equity and hedge fund representatives.)

      If it was more clear that the portfolio entities can be rolled out for the type of larger project or experiment you are describing here, it would be another way of criticizing VC which can’t be shut down based on whether or not they use leverage.

    4. Sue

      Ah, the mysterious markets! Invisible to my eyes they have caused me a painful bunion and a emotionally devastating depression! I did not do anything to them and they did everything to me!

    5. Sue

      “Behind every great fortune there is a crime”

      Sue , NC reader:
      “Big wealth and power have violence and the establishment of their legality as ancestry”

    6. different clue

      In other words, Uber is an early experiment in how to retro-lawfulize an outlaw enterprise racket?

      Like, say, the Mafia had thought really big and tried to engineer the ex post facto Legalization of all its rackets?

      And Uber is just an early iteration of this concept of pre-preparing to retro-legalize a criminal enterprise? And we will see better and better Ubers launched over and over and over again, till the Ubermeisters figure out how to retro-legalize a criminal racket 10 times out of 10 launches?

      That is an intriguing theory. And if this is true, it makes the utter extermination of Uber and the total loss of every dollar invested in it by every participant, including every driver-in-the-field; vitally important as a deterrent to launching the next Uber for at least a few years. Years in which society might perhaps be able to immunize itself against Recurrent Uberitis.

  5. McWatt

    Regards Airbnb:

    The Airbnb business model transfers the property rights of neighbors of the Airbnb location to the
    owners/renters of the Airbnb listing. This is unfair and illegal. In the parlance of Municipality Zoning it is
    “Spot Zoning” which is completely illegal. The purpose of our Zoning Laws is so all are protected; commercial, industrial, residential and multi-family. Airbnb destroys those protections and the company’s income is a direct result of illegal activities. What part of unfair and illegal don’t people understand?

    1. Carla

      I understand the concerns about Airbnb and share some of them. However, I question the rosy view that zoning codes protect all interests equitably. Zoning laws are written by the powerful to their advantage — always. They protect property owners whose wealth and influence frequently was purchased by taking advantage of others, if not thanks to outright illegal activities.

      What part of unfair and illegal don’t people understand? Some of us see the demonizing of little people just trying to survive in this neoliberal world, while bankers and their protectors crash the world economy, crushing the lives of millions, and face no consequences at all, but emerge even richer and more powerful than before. That’s the part of unfair and illegal I don’t understand.

      So yeah. I can see more than one side to this story.

      1. Carla

        The following, linked over at The Automatic Earth, has my point buried within it — I have put the critical point in upper case for emphasis. It wasn’t the Greek pensioner or the American sub-prime borrower who tanked the world economy in 2008. And it isn’t Uber drivers or AirBnb hosts who will be responsible for the next Big One. The power elite have got that covered. The richer brethren of the same people who, at the local level, write the zoning laws.

        “Illinois is in a death spiral, but it’s not alone. Illinois is merely the canary in the coal mine.

        We’re only hearing about Illinois right now because the percentage of their pensions that have been funded is the lowest in the nation. However, there are plenty of states that aren’t too far behind Illinois… And it’s not just public pensions. The pension funds for every company in the the S&P 500 are underfunded by $375 billion. BEFORE THE LAST FINANCIAL CRISIS, THEY WERE FULLY FUNDED. And globally, the problem is far worse. 20 countries in the OECD, whose members include every western and developed nation, have a combined $78 trillion in unfunded liabilities, from both private and public pensions.”


    2. Tim

      Local land-use regulations combined with mortgage interest deductions and GSE below market subsidies to higher income home buyers have been some of the most important factors in the U.S. wealth gap (not to mention racist realtors and mortgage lenders).
      Homeownership is the single most important source of wealth for everyone but the top 15% who have financial assets outside of employment programs. The factors above have elevated and supported house price appreciation in correlation to the income and wealth of owners. While homeownership is pushed on lower income households, the long-term research shows that lower income areas experience minimal house appreciation and frequent disasters (Detroit, subprime, etc, etc.). Tons of research with hard numbers on all this.

      The residential real-estate industry has been and continues to be a lobbying war machine at the local and state level to protect its own sleaze-ball transaction profiteering and supporting land-use limitations higher income home values. While they dress up and drive around in their leased luxury cars in upper income areas like stalwart citizens, they have again and again raped and pillaged every chance they get in low income areas. The only way higher income white people ever got screwed was through “blockbusting”. As soon as that was exposed, the federal government acted after a couple hundred years of housing discrimination.

      Local and state laws are hugely important and often effective but it’s different from DC. With some reasonable money you can change the law and slope the drains to your pocket. The tech jerks have all their AynRand BS but its just a different shade of lipstick on the same pig.

      If Uber or AirBnb decide that they can profit going the other way, you can be sure that new state and local regs will be passed for things like minimum or standardized rates to provide drivers a livable wage and prevent violence against women.

  6. XXYY

    Plus with so many top slots open, particularly that of the CEO, who knows how many of these new initiatives will turn out to be provisional or wind up being treated as corporate eyewash.

    It’s also important to remember that in an organization of any size, it takes time for the effects of a new management person to be felt. The general assumption in the press is that if new senior c-suite staff can be hired on Monday, then on Tuesday things will start to get better.

    My experience over several decades of large organizations is that it takes many months or even years for a new leader to get his or her feet under them and to begin propagating whatever changes and new initiatives they want to make. Obviously, the more people that are overseen by the new leader, the longer this takes. During this interregnum period, the organization drifts sickeningly in idle, waiting for new direction and new directives to appear. No one wants to do to much, given the likelihood that existing initiatives will be terminated or countermanded in short order.

    The point is that for an organization that has a big clock running, hiring new staff is the beginning of a long process, not the end of it.

  7. SoCal Rhino

    In my experience it is nearly impossible to change culture in a large group in a few years, but surprisingly easy to claim that you have after a bit of PR campaigning. Changing the way rewards are allocated and strategically encouraging a few people to spend more time with their families seems like it would work, but slowly.

    1. Bobby Gladd

      “it is nearly impossible to change culture in a large group in a few years, but surprisingly easy to claim that you have after a bit of PR campaigning.”

      to wit, @realDonaldTrump

    1. Bobby Gladd

      I dimly recall reports of onerous employee tax liability stuff from the old 2000 DotCom crash days, relating to vested stock options. Something having to do with being taxed at the once-“peak” values of subsequently worthless stock. Anyone?

      1. Vastydeep

        Yes — this is where we cover the joy of the “same day” transaction. I believe the story is basically this: When your options vest, you can exercise your options — your options become stock by your paying the strike price, and shares of stock (at the current price) are yours. This creates a taxable event. If you do a “same day” transaction then your options-conversion is paid-for out of the proceeds of the sale of the shares, which are sold immediately. You are subject to the full income tax rate if you do it this way, but nobody ever went broke paying for gains… Or, you can continue to hold your shares and try to “wait out” the better Capital Gains Rate. The problems come when your $70 shares crash to $2 — now you still owe tax based on the gains up to $70, but you have pennies stock fund to cover it. Poor You!

        1. Bobby Gladd

          Yes, thank you, that’s what I’d vaguely recalled (absent the terminology). Lotta people got creamed this way during the 2000 bust.

        2. fajensen

          Rule is: Don’t postpone your taxes, just be happy that there is a profit to tax at all.

          A lot of people in Sweden are in the red on their homes because one can defer the 15% tax on the profit on property sales by rolling it forward into the next home and so on – except – eventually one “overbuys”, maybe there is retirement, divorce, has to sell below the cost price, then the deferred taxes will come right on top of that

          1. jrs

            don’t postpone taxes would equal don’t use tax differed accounts like 401ks or IRAs unless they are the Roth variety either.

            But people are always advised to postpone taxes for capital gains purposes etc.. So they were taking the best advice they have heard. The idiocy was the law itself and expecting wage slaves (lucky wage slaves if they could have cashed out well, but wage slaves NEVER THE LESS, to make the kind of financial decisions that only those in a CLASS they have NEVER belonged to – the already rich – know how to make).

            1. jrs

              or the advice would be “hire a tax accountant” but the kind of tax accountants ordinary people see are not the kind of tax accountants that can advise about those types of things.

              Tax advice for people whose main (even if not only) income is wages isn’t the same as tax advice that is really aware of all the obscure gotchas and loopholes where real money and complex financial transactions are involved.

            2. Sue

              Ex-City CEO Charles Prince said a few weeks before the 2007 crisis started to unfold :
              “While the music keeps playing we will continue dancing” These super-managers know when the shit is going to hit the fan. They are their own income-market-makers too. A big mistake by the regular folks is to talk about Wall Street and the prime rate as if they belonged to them

  8. Amit Chokshi

    I had commented on the FT site re if uber can make money. Based on the what press sources released for uber q416 and q117 u could guess that uber needs about 20b in annual rev to break even or make a bit of money. Uber’s opex looks like 3.8b per qtr and based on sequential growth from q1 to q4 is growing at like 6pct vs uber top line growth of 17pct. Seems like there is some scaling so if it gets to 18-19b they prob break even.

    Problem is they have 2 quarters of cash left before needing more funds at a v lofty valuation.

    1. Phil In Kansas City

      Two quarters? My understanding from this posting and previous Horan posts is that Uber had about 6-7 B left of startup capital at the beginning of Q1 ’17. At the rate they are losing money, they should last until the end of Q4 ’18, assuming losses in the range of 3.5B per year. At that point, I doubt that they will still have that open line of credit, nor will they have the lofty valuation they now enjoy.

      This is a company that can never go public, as they can’t show how they can make a profit without destroying all competing cab and livery services. Who, or what entity, in their right mind, would pour more billions into this fiasco after watching 13 B go poof in subsidies to Uber passengers?

      1. Yves Smith Post author

        Uber also has over $2 billion in credit lines but no (normal) company draws on them in full when it is going down. Bear Stearns didn’t, for instance.

        Uber might be able to raise money at a much lower valuation…and the early stage investors would still be fine, but that would really demoralize the employees, and some of the later investors might not be ones the early VCs want to burn (like the dumb Saudis). So I don’t know how this works.

        Also Amit’s # are meaningless since the “opex” isn’t a fixed cost and consists to a significant degree of driver subsidies. If those aren’t kept at the same level, revenue will fall, potentially by a lot.

        1. Bobby Gladd

          Your entire amazing Uber series has utterly persuaded me. Were they publicly traded, I’d be shorting them big-time. Some CNBC OpEd guy whined today about how the (allusively metaphorically “deep state”) media anti-Travis/Uber Feeding Frenzy reflects The Death Of U.S. Innovation As We Know It. Which, of course, is what got said about the poignant (relative rounding error) Elizabeth Holmes/Theranos.

  9. Mickey Hickey

    It is not so much that the MSM got it wrong as that they did not give an opinion one way or the other on Uber’s prospects. MSM are dependent on large corporations for advertising income and it is not in their interest to make comments that reflect negatively on present or prospective customers. It has always been thus, those who have the gold make the rules written or unwritten. Uber is likely to survive but it is not likely to turn into a money spinner like Amazon, Apple, Google or Facebook. I see those four facing more competition from the likes of Alibaba, Aliexpress, Ten Cent, WhatsApp, Xiaomi, BBKElectronics, Dalian Wanda. China is racing up the value chain and has passed the point at which it can be stopped by competitors from smaller economies. China is everywhere these days, the house next door to me was bought by Chinese a year ago and sits there unoccupied but well maintained. The STEM programs in Canadian Universities have large Chinese student contingents. A grandson of mine recently entered a primary school in Canada with a competitive entry exam, 2600 applicants for 23 places. The students are 3/4 Asian with a majority of those being Chinese. This was an Irish school associated with a cathedral which opened up to French Canadians and Italians so it is unlikely that the Chinese are getting on anything but pure merit.

    1. fajensen

      This was an Irish school associated with a cathedral which opened up to French Canadians and Italians so it is unlikely that the Chinese are getting on anything but pure merit.

      I favour the conspiracy theory that the Chinese government is running a deliberate and persistent DDOS attack on the current US lead in science and technology simply by filling all the “slots” with very able, highly qualified Chinese, who will all go back home to Asia after they graduate, leaving few graduates and researchers available in the US.

      The individual Chinese does not know this, they are happy to be studying at a premier institution abroad, the parent are happy to be able to invest hundreds of thousands in their child’s education, the paid-for universities like the fees they get from the Chinese students and the CCP are happy to put some of that USD surplus to good use before it expires.

  10. marcos

    These TNC firms and the gig economy as a whole extrude the sweatshop floor into the public realm and then demand a speed up in piece work pace.

    Thus, in a place like San Francisco where there are some 45K TNC vehicles on the road at any given day, we see traffic congestion reaching previously unseen levels, surface transit speeds crawling to a snarl and every desperate person from the nine county region heading into San Francisco’s notoriously difficult street grids to participate in the piece work speed up with pedestrians cyclists and transit riders subsidizing this new disruptive industry.

    With only ten quarters of capital in the bank and with ride subsidies in the two figures, we should all be able to place tremendous demands on Uber, all riding at once. It would be like the stress to the water and sewer system were we to all flush the toilet at once. Only instead of water, we’d be flushing Uber’s VC investment down the toilet with the firm to follow shortly, circling the drain.

    The politics of this gig economy spearheaded by Uber, Left and Instacart means that there is a real employed class and an underemployed class that services those of us in the real employed class. I, for one, continue to ride my bicycle, take transit and do my own shopping. My time is simply not that valuable that I’d forfeit living a real life.

  11. LeClerc

    @travisk is out as CEO but remains a Director and Uber’s largest shareholder and retains supervoting rights.

    New management committed to profits might move to divest some of Uber’s money-pit activities (food delivery, trucking logistics, vehicle automation.)

    Interesting to watch that power dynamic evolve.

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